Hockey’s ‘Honest John’ budget routine

The federal budget presented in 1978 by then treasurer John Howard, right, not only broke an election promise of no new taxes but its new imposts ­contrasted with the so-called ‘fistful of dollars’ tax cut promise in the 1977 campaign.
AFR

John Howard
may be gone from the political stage, but, wherever you look, his legacy lingers over the 2014 budget.

In the past week, Treasurer
Joe Hockey
has been fondly quoting Howard’s first budget as treasurer in 1978 as a precedent for governments abandoning election promises and increasing taxes in the national interest.

Equally, despite all the attacks on Labor’s big-spending ways, it has been measures fuelled by Howard’s largesse as prime minister that have been at the heart of the Coalition’s attempts in 2014 to fix the structural problems in the budget.

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Things like the family tax benefits paid to people well up the income tax scale, and the double-dipping of well-off retirees into the pension system and into seniors’ health cards, despite paying no tax as superannuants, have been targets of the Abbott-Hockey razor gang in 2014.

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The images of an angry crowd trying to force its way into Parliament House shocked voters and stopped the momentum of budget anger in its tracks.

The 1978 budget was a very different story and it is not entirely clear how strong Hockey’s grasp on events surrounding that budget actually are.

If he had a closer look, he might be a little more reluctant to quote it as a precedent.

Broken promises

The parallels between the strategy of the 1978 and 2014 budgets are striking, even before we know the full details of what the Treasurer will announce.

For a start, the 1978 budget announced a “temporary" income tax surcharge of 1.5 per cent. Lump-sum payments on retirement or termination for unused annual leave were to be taxed at the full rate instead of only 5 per cent. Petrol prices were pushed up by 3.5¢ a litre by new taxes.

The budget not only broke an election promise of no new taxes but its new imposts ­contrasted with the so-called “fistful of dollars" tax cut promise in the 1977 campaign.

Universal healthcare was axed, a range of welfare payments were cut and maternity allowances abolished. Future pension increases for people over 70 were subjected to a means test.

“A tougher and more competitive Australian economy means more investment and more job opportunities," Mr Howard told the House of Representatives on August 15, 1978.

“Against this background, the government decided that adherence to our basic economic strategy called for a substantial reduction in the budget deficit from last year’s outcome.

“We realised this meant that difficult and unpopular decisions had to be taken. There was no other way of keeping faith with our commitment to responsible economic management."

In language that sounds very familiar to a voter in 2014, Howard continued: “In framing all our decisions, we have been guided by a desire to fairly share burdens throughout the Austra­lian community."

Violent reaction, humiliating backdowns

The budget went down like a lead balloon. Never had there been quite such a classic “beer and cigs up" budget.

Not only were beer, wine and cigarettes subject to increased tax, there were new imposts on imported goods that pushed up clothing prices by 12.5 per cent. For the first time, the departure tax made an appearance.

It was described as the toughest budget since 1951. The Australian Financial Review headline called it a “smash-grab budget". The then opposition leader,
Bill Hayden
, said it would help send the economy from recession to depression.

Over the next month, the reaction was violent.

The government was forced into a series of humiliating backdowns on its tax measures after repeated backbench revolts saw Coalition MPs actually cross the floor of the Parliament to vote against some budget measures, or abstain from voting from them.

There were at least five backdowns. The government was forced to revise its $10 a head departure tax, to backdown on a so-called “newspaper boys" tax (a means test on family allowances based on the income of children) and to make changes to proposed long-service and retirement benefits legislation.

It was forced to scrap a proposed tax on allowances to disabled people.

It had to get a change pension indexation through the Parliament without the support of some of its senators.

Temporary taxes become permanent

Consumer confidence slumped in the two weeks after the budget by 12.2 points. Only 14 per cent of consumers thought Australia would have financially good times over the following 12 months.

An opinion poll showed 60 per cent of voters either very dissatisfied or somewhat dissatisfied – more than had been with the previous four budgets.

There were anti-budget demonstrations in the capital cities. Mr Howard was booed by public servants outside Parliament House in Canberra.

The then prime minister,
Malcolm Fraser
, blamed the opposition leader, Bill Hayden, for fomenting violence at a Sydney rally.

Weeks before the budget, former prime minister
Gough Whitlam
had announced his resignation from Parliament and a byelection was called in his old seat of Werriwa.

A young John Kerin – who would himself one day be a Labor treasurer – was elected in late September with a 12 per cent swing to Labor. This occurred less than 12 months after the 1977 election and despite Labor continuing to carry the odium of its tumultuous years in office.

But perhaps the reason voters should be most concerned about Joe Hockey’s comparisons with 1978 is that, just six months later, in May 1979, John Howard unveiled a mini-budget which made permanent the “temporary" tax increases it had announced in the 1978 budget.

The change led to a famous front page in the Illawarra Mercury which ran the headline, “Lies! Lies! Lies!".

It became a favourite prop for Labor in its attacks on the government and particularly on John Howard.

And it was the 1978 budget which, more than anything, saw Howard ironically dubbed “Honest John".